The great specialty retail rout of 2022 is alive and well and taking few if any prisoners. One of Tuesday's victims was Fossil Group (FOSL) , which finished down nearly 11% on 7x normal average volume. But that does not tell the whole story.
Last Friday after the market closed, Fossil was dropped from the S&P SmallCap 600 Index, which means that funds tracking that Index have dumped or will be dumping their FOSL shares. That news sent FOSL down about 7% in after-hours trading. After the Labor Day holiday, Fossil opened Tuesday down 6% from Friday's close, and within a half-hour of the regular trading session start was off by nearly 24%, adding insult to injury for a stock now down 64% year to date.
Fossil's exit from the S&P SmallCap 600 is really not much of a surprise. The median market cap of the index's constituents is just over $1.3 billion, with its smallest at about $172 million. At Tuesday close Fossil's market cap was $199 million, which puts the company in microcap land. It's simply not big enough to be in the S&P 600, but I'm sure there may be other reasons it was dropped.
I took advantage (or was taken advantage of -- time will tell) of Tuesday's early big drop, averaging down my position in Fossil. Specialty retail is ugly right now, but I'm not convinced the punishment the maker of watches and fashion accessories has received fits the crime.
Fossil ended its latest quarter with $167 million in cash and $250 million debt and has an enterprise value (EV) of just $283 million. It currently trades at just 0.52x tangible book value. Small retail is not exactly a pretty situation, but even the ugliest, most soiled and crumpled-up dollar bill is still worth a dollar; at these levels, even with all its fleas, FOSL might be the proverbial 50-cent dollar.
Meanwhile, Vera Bradley (VRA) continues to slide. Vera Bradley's shares are down 60% year to date and took an 11.5% hit last Wednesday after reporting subpar second-quarter results. Earnings per share of eight cents missed the 12-cent consensus, and revenue of $130.4 million was off by just more than $2 million.
Vera Bradley's Pura Vida business, once thought to be a game-changer for VRA following its 2019 purchase of a 75% interest, saw revenues drop 21.3% year over year. Vera Bradley now expects fiscal 2023 revenue of $480 million to $490 million, down from prior guidance of $490 million to $505 million. Earnings are expected to be in the range of 20 cents to 28 cents, down from prior guidance of 35 cents to 50 cents.
Ironically, this past June Vera Bradley was also booted out of the S&P 600. Since then, its shares are down 49%. I've been tempted for quite a while to take another VRA position but have been unwilling to pull the trigger. I've got too much small retail at this point.
As for FOSL, this increased position may just be a rental. We'll see.
(Please note that due to factors including low market capitalization and/or insufficient public float, we consider FOSL and VRA to be mciro-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.)
